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It was the worst-kept secret in the internet industry, but today Microsoft proved all the rumor-mongers right by confirming that it is taking a stake in Facebook, and shutting Google out of the social networking website.

Microsoft is shelling out $240m for a 1.6 per cent stake, helping the Facebook reach a $15bn valuation in its current fund-raising company. This is a somewhat surreal price for a company that will have revenues this year of maybe $150m, according to analyst estimates.

And just think, a few short weeks ago, Microsoft CEO Steve Ballmer was comparing Facebook with GeoCities, in an interview with The Times. If he was trying to talk down the price, he failed.

Microsoft might one day be able to flip its stake at a profit - but that looks like a long term coming. The deal makes more sense if it is seen as Microsoft paying to play: for the cash, it gets to beat rival suitor Google for exclusive global third-party rights to sell advertising on Facebook.

Microsoft had previously landed a deal to sell US banner advertising on Facebook in August 2006. Today's announcement expands the pact internationally — with approximately 60 per cent of the site's nearly 50 million users registered outside the US.

"The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership," Kevin Johnson, president of Platforms & Services at Microsoft said.

Under the deal, Microsoft will sell banner ads, with both companies splitting the revenue.

Palo Alto-based Facebook said the investment will allow it to further expand overseas and develop an advertising system tailored to its users. ®